Credit exposure to the Roads Sector

Cabinet nod for Rs.27, 000 cr. roads and railways projects

According to ICRA,the banking sector’s credit exposure to the roads sector in August 2016 stood at Rs. 1.8 trn, growing at a CAGR of 14% over the last five years.

Fresh loan disbursements to road developers slowed down

In contrast to posting 20%+ growth for several years till FY2014, the deployment of credit by banks in the roads sector expanded at a much slower pace of 7% in FY2015 and 6% in FY2016. This outpaced overall growth in the banking sector’s credit deployed in industries—at 6% in FY2015 and 2% in FY2016.

This however does not imply that fresh loan disbursements to the road sector also grew faster than that to the other industriesUnlike a typical term loan extended to a manufacturing entity that may have tenure of 4-5 years,loan tenures for road developers are generally for a longer period of 8-10 years (even without factoring in the flexibility available to refinance for additional periods). Because of a longer tenure, such loans naturally amortize at a slower pace.

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